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  /  Article   /  Market Review March 2024

Market Review March 2024

Risk assets resumed its upward momentum in February 2024 with US equities registering historical new highs. The Far East ex-Japan index outperformed the developed markets.  The MSCI Far East ex-Japan Index gained 6.29%, while the MSCI World Index advanced 4.11%. Among the Far East ex-Japan markets, ASEAN equities lagged with a return of 0.97%, while Chinese equities rebounded strongly. Markets that performed relatively better were Chinese A shares (+9.35% in Local term), Chinese H shares (+9.32%) and Vietnam (+7.59%), while the laggards were Singapore (-0.35%), Thailand (+0.45%) and Indonesia (+1.50%). Regional currencies were mixed against the USD. The best performing currencies were Indonesia Rupiah (+0.40%) and Korean Won (+0.24%), while the weaker ones were Taiwan NT (-0.98%) and Thai baht (-0.95%).

Major US indices continued to advance.  The market held up on optimism over favourable corporate earnings result announcements and continued softening of headline inflation. Quarterly earnings released by five of the ‘magnificent seven’ US stocks reporting results for the previous quarter. These companies broadly met or exceeded expectations, contributing to significant gain in the S&P 500 over the month. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +2.22%, +5.17% and +6.12% respectively. US headline inflation reduced to 3.1% YoY (December: 3.4%). Economic data also proved resilient. The US composite Purchasing Managers’ Index (PMI) recorded 52.5 in February 2024, suggesting activity continued to expand over February, while the US economy added 353,000 jobs in January.

The Stoxx Europe 600 Index gained 1.84% amidst risk-on sentiment. In Europe, the larger than expected rise in the eurozone composite PMI in February to 48.9. Although the number still indicated contractionary industrial production and manufacturing activity, the improvement suggested the worst of the continent’s growth weakness is likely over.

Hong Kong and H shares indices recovered strongly on bargain hunting from South bound funds despite foreign funds outflow. The Chinese government announced a number of supportive measures, including a cut to the 5-year loan prime rate (a benchmark for mortgage rates), curbs on short selling, and stock purchases by state-owned investment firms. Hang Seng Index gained 6.63%, while Hang Seng China Enterprises Index and China’s A shares index gained 9.32% and 9.35% respectively. China’s manufacturing activity remained soft in February. The February China manufacturing purchasing managers’ index came in at 49.1, remaining in contraction for a fifth straight month. The disappointing numbers underlined the fragility of the economic recovery and fueled calls for more policy support. Strong domestic consumption during Lunar New Year festival period spurred investors sentiment and drove the market higher.

South Korea’s KOSPI Index gained 5.82%. The Bank of Korea (“BOK”) kept the policy rate unchanged at 3.50% during its February 22 meeting. However, there are emerging signals that the BOK is considering the possibility of rate cuts at the next several meetings. South Korean export growth exceeded market forecasts in February, expanding for a fifth successive month as a surge in semiconductor demand made up for a decline in vehicle sales.

Taiwan’s TWSE Index gained 6.02% on strength and optimism over semiconductor sector fueled by AI theme. Taiwan export orders totaled US$48.42bn in January, up 10.5% MoM (+18.3% when seasonally adjusted), and up 1.9% YoY, far above the consensus of a 16% YoY decline. The figure was significantly higher than expected on a low base comparison, as CNY started in January in 2023. Hence, a more precise YoY growth trend projection will be possible after February figures are announced, coupled with the consolidated January-February figures.

Singapore’s STI declined 0.35% on continued profit taking. The index heavy banking sector performance retraced on weaker than expected results announcement. Singapore’s economy grew 2.2% YoY in the fourth quarter of last year, coming in below advance estimates of 2.8% and consensus forecasts of 2.5%. Still, the latest figure was a significant improvement from the 1% growth in the previous quarter. It was the 12th consecutive quarter of economic expansion, and was the strongest since the 3Q22.

Malaysia’s KLCI gained 2.54%. The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) for February rose to 49.5 from 49 in January, suggesting a mild improvement in economic conditions despite the ongoing challenges has indicated a slight uptick in economic conditions for the manufacturing sector.  Thailand’s SET Index continued to weaken, declining 0.82%. The Thailand Chamber of commerce confidence index increased to 62.9 in January 2024 from 62.0 in the previous month. The improved consumer confidence was due to government measures to reduce costs of living, like fuel and electricity prices, and better tourist arrivals. The S&P Global Thailand Manufacturing PMI rebounded to 46.7 in January 2024 from December’s 45.1, signaling a slight recovery in the manufacturing sector. Despite the improvement, it marked the sixth consecutive month of contraction, driven by a persistent decline in new orders.

Jakarta Composite Index gained 1.50%. Indonesia’s annual inflation rate edged down to 2.57% in January 2024 from 2.61% in December, compared to expectations of 2.55%.  It approached the mid-point of the central bank’s target of 1.5% to 3.5% for 2024. It was the lowest inflation level since last October. GDP growth improved slightly to 5.04% YoY in 4Q23, up from 4.94% in 3Q, broadly in line with expectations. Seasonally adjusted, GDP growth rose +1.4% QoQ from 0.8% in the previous quarter. The improvement implies a slower GDP growth of 5.05% for 2023 from 5.31% in 2022.

The Philippines PSE Index gained 4.49%. Increased cash remittances boosted domestic consumption.  Cash remittances through banks in the Philippines grew by 3.8% Yoy to USD 3.3 billion in December 2023 from USD 3.2 billion in December[don’t think necessary to have these additional details]. For the whole of 2023, cash remittances increased by 2.9% to USD 33.5 billion, bolstered by higher remittances from the US, Saudi Arabia and UAE.

Vietnam’s VN-Index continued to strengthen with a gain of 7.59%. Vietnam’s Government has set ambitious 2025 and 2030 targets for the securities markets. The government aims to upgrade Vietnam’s market from Frontier to Emerging Market by 2025. It also set a target of stock market capitalization equal to 100% of GDP by 2025 and 120% by 2030 (current: 56.7%); the number of stock trading accounts to reach 9 million by 2025 and 11 million by 2030 (current: 7.3m accounts); The outstanding corporate bonds to equal to at least 20% of GDP by 2025 and 25% by 2030 (current: 10.7%).

After many months of rate hikes by the US Fed to beat inflations, the easing of inflation rate in the US in recent months has raised market expectations that that rates may start to fall.  Fed officials have provided forecasts of several rate cuts in 2024, although whether this will materialize will depend on the economic data when the time comes.  The market has been hopeful of rate cuts starting as early as March, but the prospect of this happening has been pushed back to the second half of 2024.

So far, resilient US economic data, good corporate results from big US techs, the plays on companies benefiting from AI and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher, breaching new historical records.

US economic and inflation data, and expectation on, and Fed’s rate decisions, will continue to have a major influence on investors’ investment decisions on risk assets in US and elsewhere. Investors are pricing in a lower interest rate environment as early as second half of 2024. This has kept investment sentiment buoyant, despite the US market’s elevated valuation and continuation of geo-political tension.

We are also watchful of geo-political developments as well as policy directions in the major economies, in particular US and China.  The new geo-political risk arising from the Israel-Hamas conflict, and the risk that it may potentially spread in the Middle East has added to the uncertainties. US economic and inflation data and interest rate policy responses will affect market sentiments and liquidity. Increasing attention will also focused on who will win the race to sit in the White House in 2025.  In Asia, the focus is on the pace of China’s economic recovery which has been weaker than expected.  The Chinese property sector continues to face severe challenges, and any sign of stabilization and growth will have positive catalyst for the economy and risk assets.  The Chinese government has announced various support measures to help the economy, and the market expectation is that more will be required, and it may take time for the initiatives to bear fruits.

While we are cautiously optimistic, there remains headwind for risk assets, including continuation of high interest rate and its impact on business and economic activities, and slower than expected economic growth in China, as well as the relatively high valuations in the developed markets. The continuing geo-political tension in Europe and in East Asia, and the new conflict in the Middle East will keep risk premium elevated at times and result in markets volatility.   We will be watchful on these.

The prolonged sell down of Chinese equities and their depressed valuation may offer potential upside on expansionary Chinese policies to support economic activities.

We continue to apply our strategy of focusing on identifying fundamentally healthy companies with low valuations, low leverage, high growth, robust management and a strong track record, and adherence to our investment philosophy of “Never Fully Invest at All Times” which has served us well over the years.

We thank you once again for your continued faith in us, and hope to remain good stewards in our endeavour to protect and grow your capital.

This article is solely for information purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. The information contained herein does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors may wish to seek advice from a financial advisor before making any investment decision. Past performance is not indicative of future results. An investment is subject to investment risks, including the possible loss of the principal amount invested.